Has lead to this…
Supply chain issues continue to extend beyond automotive and tech; now it’s starting to affect household product supply chains. According to Forbes (Link) the American giant Procter and Gamble (2019 revenue: 67.68bn USD) says that it too now has significant problems. “We access 387 suppliers in China that ship to us globally more than 9,000 different materials, impacting approximately 17,600 different finished product items,” Jon Moeller, Procter & Gamble’s chief operating officer and chief financial officer, said Thursday at a conference in New York. “Each of these suppliers faces their own challenges in resuming operations.” The article adds that this will affect P&G’s profits in the China retail market.
Bloomberg – another automotive runs into problems; Nissan is warning of disruptions in plants as far as the US due to the virus epidemic leading to parts shortages. They procure more than 800 parts from factories in Hubei and are concerned that many of these pats will run out (including such things as brake hoses and air conditioning controllers) if the plants do not come back online by today (the date the government indicated most production could resume). This could lead some Nissan output in Japan to be suspended as early as Jan 23rd with Malaysia following not longer after. Plants in the US, UK, India, Mexico, Russia and Spain may also have to stop production. A survey of their suppliers found only 58% said they’d be able to resume by Feb 10th with many others saying they couldn’t because they couldn’t get necessary government approval. Of those that have gone back online, only half of them could get the majority of their workforce working. (Link)
Reuters – major automotive parts manufacturer Valeo (19.48bn EUR revenue in 2019) says that most of its Chinese factories are now back online but not at full operational capacity. It expects production to fall by 2% this year and adds that that it is too early to evaluate the impact of the virus on the company’s 2020 results and the wider auto industry. (Link)
The International Air Transport Association (IATA) says that Asia-Pacific airlines could lose $27.8 bn to coronavirus according to Philstar (Link). The estimate is based on projections of a 13-percent full-year decline in passenger demand, mostly in China. IATA’s CEO says that this will be the first time since the 2008-2009 financial crisis that demand for air travel has declined and that stopping the virus is a top priority. Airlines in China’s domestic market alone are estimated to lose around $12.8 billion in revenues, reversing an expected 4.8% growth into a 8.2% contraction.
Food prices – China produces 80-90% of the worlds garlic supply (depending on which article you read) and the price of it is rising sharply. Prices in the US are up 29% from last year whilst wholesale prices are up even more to 60% higher than this time last year. The reason is difficulties in transportation and a shortage of labour as most people are yet to return to work (either because they’re unwilling or they’re physically unable). (Link).
Amazon is beginning to worry about Prime day in July – the Seattle Times reports (link). Third party merchants account for about 60% of its sales and it has reached out to these merchants to understand how they might be impacted. Over the past few weeks, Amazon has responded to the crisis by making larger and more frequent orders of Chinese-made products that had already been shipped to the United States, according to company emails and consultants who work with major brands. Some of its suppliers have cut back on advertising and promotions on the site so they don’t run out of products too quickly. “Out of an abundance of caution, we are working with suppliers to secure additional inventory to ensure we maintain our selection for customers,” an Amazon spokeswoman said. The company later added, “We are monitoring developments related to the coronavirus and taking appropriate steps as needed.” Amazon’s algorithms have now asked for six to eight weeks of supply on products made in China instead of just two or three weeks.
The Taiwanese commonwealth magazine has a thoroughly interesting read on whether Taiwanese companies can cope with the Coronavirus (link). It focuses on The Formosa Plastics Group (revenue: 67.2bn USD) first which has forecast that the coronavirus scare will hit it far harder than did the SARS crisis in 2003, with first quarter revenues, which were originally expected to take a turn for the better, likely to slump from the previous quarter. If China shuts down for an extended period of time and inventories build up, “under the worst case scenario, the crack spread [the difference in price between a refined product and crude oil] would fall below US$2, and we would cut production, which would mean we were producing below cost,” Formosa Petrochemical Corp. President Tsao Minh explained. Other industries are examined; automotive has significant issues which we all now know, but steel should be OK from a supply perspective because raw material comes from Australia, Brazil or Canada. The article finishes by explaining that the worst may yet be to come for the entertainment and tourism industries.
Getting workers physically back to work – the SCMP (South China Morning Post) reports (link) that provincial governments in China’s east coast manufacturing hubs are chartering buses, planes and trains to get workers back into their factories to get things moving again; passenger traffic on public transport is only 1/5th of what it was this time last year. Couples returning to work at open factories are eligible for a one-off subsidy of 500 yuan (US$71), while a company that hires more staff than in the same period a year earlier can also receive subsidies up to 300,000 yuan (US$42,800) whilst the city of Yiwu is refunding bus and train tickets for workers who return if they arrive before tomorrow.
Economic woes spread to companies who don’t have supply chains: the Epoch Times has an article (link) waring that many small to medium sized enterprises don’t have large cash reserves and may struggle if the situation continues for a sustained period. Just 34 percent of nearly 1,000 small and medium-sized firms said they could survive for a month on current cashflow, a recent survey by Tsinghua University and Peking University showed. A third said they could last for two months, while 18 percent said they could stick it out for three months. One analyst estimates that total job losses in China could be as high as 4.5 million.
Apple’s Foxconn and Pegatron factories might be open, but don’t assume they’re fully staffed says MPR News (link). “One production line used to have 4,000 people. Now there are about a dozen remaining. My own production line usually has 1,000 workers, with about 60 now remaining,” says a female hanjia worker at Foxconn. (Hanjia means winter break, i.e. people who continue working through the spring holiday that most Chinese take off). Smaller manufacturers are having a harder time. A rare earths magnet maker that normally employs about 300 people in the city of Hangzhou, south of Kunshan, received permission to reopen from local authorities last week. The factory was able to begin manufacturing again with a skeleton crew after buying a large disinfectant machine. Rare earth magnets are used in everything from electronics to motors. For any factory to reopen now, “There’s paperwork that has to be submitted to the local government, and that includes guaranteeing masks, some other protective gear that employees can wear, a disinfecting schedule,” says manager Jen Ambrose, one of the few Americans who works at the magnet company.
A white paper has arrived! Dun and Bradstreet have done a great report on the economic impact of the coronavirus. If you’re into economics, this is definitely worth a 15 minute read. Some takeaways: 90% of all active business in China are affected. At least 51,000 companies around the world have one or more direct tier 1 suppliers and at least 5 million have at least one or more tier 2 suppliers. Alternative countries for suppliers: Electrical machinery and parts could come from Brazil, the nuclear industry could tap Chile or Singapore, Furniture, plastics, toys and games could be covered by Mexico and Brazil, Motor vehicle parts as well as optical and surgical products could be covered by Chile, Colombia or India. Growth is certainly going to drop below previous forecasts but how much by depends on how fast the virus is contained.
If coronavirus isn’t brought to heel, economic bedlam awaits..
Covid-19 interrupting supply chains from watches to lobsters
Gloomy data, virus weigh on Wall St
‘UNKNOWN SITUATION’:There is a break in the supply chain as well as in the demand for products, which presents a challenge to global growth, an advisory firm manager said
JCB to cut UK production as coronavirus hits supply chain
The private company will reduce the working hours of about 4,000 employees from Monday from 39 to 34 hours a week.Workers will be paid for a 39 hour week and bank the hours, working them back later in the year. Overtime will also be suspended, the group said on Thursday.
Southeast Asia’s garment supply chain torn up by virus
YA THINK? Maybe Global Supply Chains Were A Bad Idea: The coronavirus outbreak exposes the peril of far-flung parts networks and the risk of paralysis.
… and then there’s this …
This economy is dead. The corpse only appears alive because of all the parasites living off what remains, and each other.